What is property tax? How is it calculated?

What is property tax? How is it calculated?

Property tax is a yearly or semi-annual tax imposed on real estate owners by local authorities. It is an ad-valorem tax, which means that the amount owed is calculated as a percentage of the assessed value of the property.

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In India, the tax serves as a main source for local governments, which are usually used to finance public services like schools, police and fire departments, road maintenance and other community services.

This tax typically applies to immovable assets such as land and buildings. But there are a few areas where property taxes are levied on movable properties like vehicles and industrial machinery.

It is an important component of the fiscal autonomy of local municipal bodies, allowing them to have financial independence and govern efficiently. This tax plays an essential role in urban planning and development.

The required documents for paying property tax in the country include the property tax bill, a document proving ownership, a unique identification number assigned to your property, identity proof and address proof, among others. A person can pay property tax online by logging in to the official portal of the municipal corporation of their region.

Different Methods to Calculate Property Tax:

Capital Value System (CVS) –

Under this method, property tax is calculated as a percentage of a property’s market value. The government determines this market value based on the location of a certain property. This valuation system is revised and published every year and it is used in multiple Tier-I cities like Mumbai.

Annual Rented Value System – According to this system, tax is calculated based on the rental value of the particular property. It is based on the property’s location, size and condition. It also considers the property’s accessibility to landmarks and other important features. This system is used to calculate property taxes in Chennai and certain areas of Hyderabad.

Unit Area Value System – This method calculates taxes based on a property’s per-unit price and built-up area. The price is determined by the estimated returns of the property based on its usage, location and land value. This value is then multiplied by the built-up area, providing the final tax valuation.

Many municipal authorities use this strategy, including Delhi, Hyderabad, Bengaluru, Patna and Kolkata.

Property tax calculation:

Property Tax = Base value x Type of building x Age factor x Floor factor x Category of use x Built-up area

Various corporations use different methods to calculate property tax; however, the overall strategy is often consistent.

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